(Bloomberg) -- Aiful Corp., the consumer lender brought to the edge of bankruptcy a decade ago, is on the verge of selling Japan's first yen-denominated junk bond in the public markets, showing how local investors are willing to take on more risks as negative interest rates linger.
The issuance would be a milestone in Japan's bond market, where companies haven't felt compelled to sell speculative-grade notes as they've traditionally had close ties with banks, who can be more forgiving than bondholders in tough times. Aiful may price the 18-month yen bond with a coupon of about 1% by the end of this week.
Few expect the offering to trigger a rush of similar junk bonds in Japan. But some recent changes have at least raised the possibility that the country could eventually develop such a market.
State-run Government Pension Investment Fund, which manages the world's largest such pool of assets, revised guidelines last year to allow it to buy yen bonds with ratings of BB or lower. Japanese debt investors, who are traditionally quite conservative, have only been slowly buying more bonds rated BBB in the past few years.
Ratings Improve
Easing in investment criteria, together with an improvement in Aiful's own ratings, helped pave the way for the offering, Kinya Numata, a manager in the company's finance department, said in an interview. The company intends to use the proceeds from the planned bond sale for its lending business, he said.
Japan Credit Rating Agency raised Aiful's credit rating two levels to BB with a positive outlook in November, citing expectations that the company will be able to generate stable profits in the future as interest repayment claims decline. Aiful recorded a profit for the first time in a decade in the 12 months to March 31 after deducting costs related to such payments.
Consumer lenders in Japan have been under siege since 2006, after a Supreme Court ruling ordered moneylenders to repay exorbitant interest charges on loans, and lawmakers capped how much they could charge.
--With assistance from Issei Hazama.
To contact the reporters on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net;Komaki Ito in Tokyo at kito@bloomberg.net
To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Beth Thomas
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